dwot (30.15)

The Squeeze, The Squeeze

7

Big Picture had a post and what really got my attention is that if you take out oil the profits for the S&P are down 30%.

Personally I think oil is bubbling right about now. When you hear stories about people who own oil rights and how much contact they are getting about those rights, well, I think over investment will happen and with that prices will come down.

One of my clients, a construction guy, came in wanting to buy coal stocks. That's the sign the bubble is about to pop. I lost most of my PBR profit when I tried to short it, just as I got smoked (squeezed) by FSLR, my 2nd most expensive loss to date. But I certainly wouldn't initiate new energy long positions. There are also rumblings about financial troubles still in the credit crisis. I have moved to defensive for most of my long positions, XLP, HOLX (a great buying opportunity), MRK etc. HOlding shorts in COF, and initiated a short in AMZN. Tomorrow, going to try my second options trade, puts in SOLF. All I need it to do is selloff once bigtime between now & june. I partially got back at FSLR that way. I HATE that stock!

Sure am looking for an entry into GLD, DGP etc, but the charts don't yet give me a comfortable feeling of support.

BTW, when the oil corrects, and it will, will be nasty for SPY. MY SDS hedge will certainly help!

- profits from Western oil companies will go down, not up because they will have access to less and less oil.

"Drillers could access only 7 percent of known world reserves in 2005, down from 85 percent in 1970 after Middle Eastern nations took control of their fields, according to a July report by the National Petroleum Council in Washington."

and the cost of getting the oil fields available to them is skyrocketing:

"Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Chevron Corp., Total SA and ConocoPhillips, which will spend a record $98.7 billion this year on exploration and production, Lehman Brothers Holdings Inc. estimates. Costs more than quadrupled since 2000 as explorers targeted more challenging reservoirs and demand rose for labor and material."

- The big oil field recently discovered by PBR is not really accessible with the currently-available oil drilling equipments so there won't be any oil surplus any time in the near future.

- The big Western oil companies end up spending their money to buy back stocks, gradually liquidating themselves, since there's not much left for them to explore/drill:

"ExxonMobil, BP, Chevron, Royal Dutch Shell and Conoco used 56 per cent of their increased operating cash flow on share buy-backs and dividends instead of exploration, the study said. They continue to commit billions to share buybacks, with Exxon, the world's biggest private oil company, spending $35.6bn for share buy-backs and dividends in 2007, up $3bn from 2006."

"Exxon, Chevron and ConocoPhillips, the three largest U.S. producers, all produced less oil in the first quarter. Chevron's reserves fell to the lowest in almost a decade last year."

I don't think oil will correct until the global economy corrects. We've been running hot the past few months - commodities are running, and the bad economic numbers (job losses, production declines, etc) are not enough to merit a correction in oil. Oil runs off supply/demand - right now demand is percieved to be much more than supply. If the US finally gets around to properly tanking and we get a real, noticable economic slowdown (the current numbers only foreshadow - the s h i t has yet to hit the fan) then and only then will oil truely correct.